Fund Managers That Don’t Invest in their Funds: Unbelievable.

I know stockbrokers who don’t invest in stocks. But I’ve never heard of a mutual fund manager who didn’t invest in his/her fund.

But, according to an article by Joanna Ossinger on TheStreet.com today, based on research from Morningstar, a lot of fund managers don’t invest in their funds.

In fact, according to the June issue of Morningstar’s the FundInvestor, 47% of U.S. stock funds have zero manager ownership. Even worse, 61% of foreign-stock funds, 66% of taxable-bond funds, 71% of balanced funds and 80% of muni-bond funds have no manager ownership.

What’s going on here? You would think that managers would invest in their own funds. Unless they don’t believe in their funds. Or do they know something we don’t? Mmmmmm, that’s something to think about.

Morningstar’s Russel Kinnel says that there are only 2 good excuses for a manager not owning a fund he/she runs:
1. if the fund they’re managing is a single-state muni bond fund and the manger doesn’t live in that state, because the manager won’t benefit from the tax breaks
2. foreign managers of foreign-stock funds are sometimes barred from owning U.S. funds

OK, so I can see managers in the above situations not investing in their funds, but what about the rest of the fund managers?

The article also lists the 32 funds in which all managers invest more than $1 million. That’s nice, of the thousands of mutual funds out there, only 32 have full management investment of more than a million bucks.

So, would you invest in a fund that has zero management investment? Let us know.

But I can tell you one thing: before I invest in another fund, I’ll definitely first check to see if its manager invests in it.